Southern Nevada Economy is Sunny with a Few Clouds

Many of the Clark County and Las Vegas Valley trend lines continue to show gradual improvement, but not every metric is on the rise. The number of average weekly hours worked remained stagnant for the sixth month in a row and are unchanged year over year from December 2015. The upshot? Southern Nevada companies continue to depend pretty heavily on part-time workers. For this reason, Nevada’s U-6 unemployment rate (including discouraged and part-time workers) remains among the nation’s highest at 12.2% as of Q4, 2016.

The RCG Employment Index 12-month moving average (“12MMA”) for Clark County again ticked up by 0.1 points to 97.8 in December. The Index is up 0.9 points when compared to December 2015. For nearly 6 years the Index has been steadily climbing and is now 2.2 points below the peak. The Index peaked at 100 in November 2006.

The 12MMA of Clark County’s headline unemployment dropped to an even 6% in December. When compared to December 2015, the headline rate is down by 0.8 points. The rate reached its lowest level in October 2006 when it was just 4%.

On the other hand, the rate of job growth in the Las Vegas MSA continues to slow. In December, it was unchanged at 2.4% (12MMA). Job growth in Las Vegas is being affected similar to what is occurring at the national level. According to the Brookings Institution, the slowdown mainly due to decreasing demand for unskilled labor.

The U-3 and U-6 unemployment rates for Nevada have both declined in Q4 by 0.3 points. The U-6 rate fell from 12.5% in Q3, 2016, to 12.2% in Q4. The U-3, or headline rate, fell under 6%, from 6.2% to 5.9%. Regarding the U-6 rate, Nevada is still among the worst in the nation, ahead of only New Mexico and Alaska. In terms of the U-3 rate, Nevada is doing only slightly better. Nevada is now out of the bottom five and tied with Illinois with the 7th highest rate in the nation at the start of 2017.

Construction jobs in the Las Vegas MSA continue growing at a steady pace as housing and commercial real estate demand rebound. Construction workers in Southern Nevada numbered 57,758 in December 2016 (12MMA), up 6,883 jobs (13.5%) from December 2015. Construction jobs have now grown for 53 straight months and represent 6.5% of the region’s job-base at the end of December. The latest number of jobs in the industry is still far below the November 2006 peak of 108,833 when they accounted for 11.4% of all MSA jobs. It is unlikely we will see those pre-recession construction job numbers in the foreseeable future. This should not be cause for concern because construction is not considered a “primary industry” and can be volatile.

On a 12MMA basis, Clark County visitor volume in December was up from the previous month, growing by 0.12% after November’s weak 0.03% increase. When compared to December 2015, the YOY visitor count was up 1.5% in December. The month of greatest YOY growth since October 2005 was September 2011, when visitor volume grew by 4.5%. 2016’s visitor total of 42.9 million is approximately 600,000 higher than the previous year’s total.

Monthly Clark County convention attendance increased by 0.23% in December compared to November (on a 12MMA basis) to 518,729. Compared to December 2015, convention attendance is up 7.7%. The 12MMA monthly peak attendance of 529,185 was in January 2007. December’s attendance represented 98% of the peak.

Convention attendance grew significantly in 2016. This can be attributed to a stronger national economy and business investment in marketing. The previous peak in YOY growth, eclipsed in the first month of 2016, was in February 2006 when convention attendance rose by 10.5%. The last two months of 2016 were the only ones in which YOY growth did not break 10%.

The 12MMA of hotel revenue per available room (RevPAR) in Clark County was $113.75 in December, an increase of $2.1 (1.9%) from November. Compared to December 2015, RevPAR is up $8.54 (8.1%) and continues on its streak of YOY growth that began in December 2010. The RevPAR 12MMA peak occurred in December 2007 at $119.43.

Note: RevPAR is a performance metric in the gaming and lodging industry. It is computed by dividing a resort’s or hotel’s room revenue by the room count and the number of days in the period being measured.

Gaming revenue net of baccarat remains weak, decreasing in December 2016 by -0.37% to $707.7 million on a 12MMA basis. YOY growth in December was 2%. Gaming revenue net of baccarat is well below the October 2007 peak of $834.4 million.

The net baccarat revenues are largely comprised of slot revenues, which generally reflect wagering of typical gamblers, especially U.S. gamblers. Slot revenues continue to remain lackluster for two reasons: constrained disposable income and changing spending patterns, especially among adults under 35. Millennials are preferring to spend their money on the clubs, restaurants and show experiences rather than gambling.

According to Home Builders Research, in December total (new and resales) Clark County home closings, which numbered 4,544 (12MMA), were down -0.59% from the previous month. The outlook is better when gauged on a YOY basis, with total home sales up by 7.9% compared to December 2015. Resales saw a YOY increase of 6.6% to 3,886, while new homes sales jumped 16.6% to 658. This was the 18th straight month of increasing YOY new home sales after 14 months of declines and the 15th straight month of YOY gains of over 10%. The most recent monthly peak occurred July 2012 with 4,777 sales.

Per Home Builders Research, the 12MMA median home price (new and resale) in December was $220,199, a 6.4% gain over December 2015. The peak of $305,333 was recorded in February 2007.

The median new home price in November was $323,340, up 4.0% from the previous year. The peak of $327,066 occurred in February 2007. This means that the current median new home price has recovered to 98.9% of its pre-recession peak.

The median resale home price was $202,774 in December, a 6.4% increase during the last 12 months. The peak of $286,833 was in April 2007. This means that the current resale price has recovered to 70.7% of its pre-recession peak. For comparison, the median resale home price in the Reno-Sparks MSA was $303,742 (12MMA).

The combined rate of home appreciation for new and resale homes had slowed considerably in mid-2015, but then started to accelerate again. It appears that at the end of 2016, home appreciation is again slowing down. In December 2015, the YOY price increase from 2014 was 9.9%. This is 3.5 percentage-points more than the 2016 figure. The annual peak of 35.8% growth occurred in February 2005.

The 12MMA 30-year fixed rate mortgage in the Western Region increased slightly by 0.01 points to 3.62% in December after a 0.03-point decrease the previous month. Though small, this is the first increase after 11 straight months of steady decrease. The 10-year peak of 6.4% occurred in October 2006. The 30-year fixed rate mortgage should remain relatively low, but will likely to go up because of Federal Reserve actions.

The 12MMA Case-Shiller home price index for the Las Vegas MSA reached 149.2 in October, a rise of 5.7% compared to October 2015. The index peaked at 233.2 in December 2006. The latest index is 64% of the peak, making the region a competitive housing market. The greatest positive annual change (44.5%) in the index occurred in March 2005, while the greatest negative change (-31.8%) occurred in August 2009. These trends are similar to those reported by Home Builders Research.

2016 had a lackluster conclusion with 2 of 3 commercial vacancy rates increasing in Q4.

The Industrial market vacancy rate increased by 0.1 points to 5.2% in Q4. The situation was the same on a 4-quarter moving average basis with vacancy increasing by 0.1 points to 5.2% in Q4.

The Spec Office vacancy rate increased by 0.3 points to 20.3% in Q4. On a 4-quarter moving average basis the vacancy rate was up 0.2 points to 20.2% in Q4.

Anchored Retail was the only market to see vacancy decrease in Q4, dropping by 0.6 points to 10.5% in Q4, 2016; however, the 4-quarter moving average Retail rate fell only 0.2 points to 11%.

This is the first increase in vacancy in the Industrial market after 14 quarters of improvement, though it is no cause for concern. It largely reflects the quality of the remaining available space in the market. The vacancy rate is very low and developers continue to bring a large volume of new space to market. The Retail market, on the other hand, has only seen new space come to market in 1 of the last 8 quarters.

As of January 3, 2017, the prime rate remained at 3.5%. The 10-year treasury bond rate rose by 0.04 points to 2.49%. The 30-day LIBOR ticked up by 0.14 points to 0.76%. Lender rates are expected to continue shifting upward, yet they remain relatively low and continue to benefit the commercial real estate industry in terms of the cost of borrowing. The challenge: filling the excess capacity, especially in the office market, when job growth is moderate and companies remain hesitant about expanding their space footprint.

The Las Vegas MSA 12MMA average weekly earnings (not inflation-adjusted) in December was up by $1 compared to November, reaching $744, and is up $18 (2.3%) from December 2015. On an inflation-adjusted, YOY basis, earnings increased 1.1% in December 2016 compared to December 2015 to $651 (in 2007 dollars). Las Vegas’ average weekly real wage is now an even $100 (13.3%) below the most recent inflation-adjusted peak of $751 that occurred 9 years ago in August 2007. The trough occurred in February 2012 at just over $616, so Las Vegas is still closer to the trough than the peak.

On a 12MMA basis, the number of average weekly hours worked in Las Vegas (Clark County) remained stagnant at 33.2 for the sixth month in a row. On a YOY basis average weekly hours are unchanged from December 2015. The 7-year peak of 36.9 hours occurred in October 2008. As we’ve noted, weak average hours worked have been accompanied by a slowly declining headline unemployment rate. In Q4-2016, the U-6 unemployment rate recorded a 0.3 point drop, so we remain optimistic that we will soon see increases in weekly hours worked.

Implication: Companies continue to depend heavily on part-time workers. For this reason, Nevada’s U-6 unemployment rate (including discouraged and part-time workers), though declining, remains among the nation’s highest at 12.2% as of Q4, 2016.

As of February 1, the price of regular unleaded in the Las Vegas MSA rose $0.04 (1.5%) from a month prior, resulting in a per gallon price of $2.41. Compared to this time last year, the price of regular unleaded is $0.12, or 5.1%, more.

According to AAA, “Continual growth in the number of U.S. oil rigs and the increased drilling it implies are raising expectations for a climb in domestic oil production. Additionally, increased U.S. crude oil production coupled with lower driving demand has kept downward pressure on the national average price at the pump, which has fallen for 21 consecutive days.

Gas prices on the West Coast continue to be the highest in the country, with every state in the region landing on the top ten list of most expensive markets: Hawaii ($3.07), California ($2.80), Alaska ($2.74), Washington ($2.73), Oregon ($2.52) and Nevada ($2.47).”